Inflation dips, but still above RBI line

There Are Indications That The Rate Will Enter The Sub-6% Territory Next Week

INFLATION for the week ended March 24 stood at 6.39%, out of RBI’s comfort band of 5-5.5%. However, there are indications that the inflation rate may enter the sub-6% territory next week. The rate, which measures the general level of prices of goods and services in the economy, dipped marginally from 6.46% at the end of last week. The good news is — inflation is expected to finally taper down over the next few weeks. Inflation remained unchanged at 6.46% for the first three weeks of March after which it fell to 6.39%. It reached its peak at 6.76% in January 2007 and has been exceeding 6% ever since. The tapering to sub-6% level will be largely due to the baseeffect. “I expect inflation to fall in April, yet the battle wouldn’t be over as then the challenge would be to not let it rise,” Economic Advisory Council member Saumitra Chaudhary said. Crisil chief economist D K Joshi said that moderation in inflation would be visible in the next two months and is expected to fit into the RBI’s comfort band by the second-half of the year. He added that a slow down in the economy is likely. Crisil has projected an 8% GDP growth for 2007-08. Endorsing the view of a slowdown, Mr Chaudhary said: “I expect the GDP to be lower than what it has been in the past two years.” RBI raised the cash reserve ratio (CRR) and repo rates last week, in a bid to tame the rising inflation. While repo rates — the rate at which banks borrow from the central bank — were raised by 0.25 percentage points to 7.75% with immediate effect. CRR — the ratio of deposits that banks are required to mandatorily keep with RBI — was rasied by 50 basis points in two stages. While the interest rate hike of last week will slow down inflationary expectations, the interest rate hikes in the past two years will also have an impact on the growth, economists said. The Wholesale Price Index (WPI) rose by 0.2% to 209.8 points during the week from 209.4 points in the previous week. The highest price rise was in case of raw cotton, where the prices went up by 13%. The food articles group index declined marginally by 0.1 points from 214.4 in the previous week, mainly driven by lower prices of tea, barley and fruits & vegetables which fell by 4%, 3% and 1%, respectively. The prices of pulses went up by 1.4% and that of urad by 4%.

Courtesy: EconomicTimes
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